Siem Offshore (OB:SIOFF) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Siem Offshore's (OB:SIOFF) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Siem Offshore, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.044 = US$39m ÷ (US$1.0b - US$115m) (Based on the trailing twelve months to December 2022).

Therefore, Siem Offshore has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 7.1%.

View our latest analysis for Siem Offshore

Historical performance is a great place to start when researching a stock so above you can see the gauge for Siem Offshore's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Siem Offshore, check out these free graphs here.

So How Is Siem Offshore's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. We found that the returns on capital employed over the last five years have risen by 586%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Siem Offshore appears to been achieving more with less, since the business is using 50% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In summary, it's great to see that Siem Offshore has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has dived 91% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

Siem Offshore does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

While Siem Offshore may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.